Disease Forecasts and Livestock Health Disclosure: A Shepherd's Dilemma

We analyze how to induce sellers to disclose food safety. With repeated interactions and safety correlated over time, cash transfers alone do not ensure disclosure. Perfect, but costly, testing ensures disclosure with a complex lottery that may be difficult to implement in practice. In contrast, even a noisy quality forecast allows the buyer to induce perfect disclosure with a simple pricing scheme. Forecast introduction may benefit or harm sellers. After introduction, sellers may suffer from increases in forecast precision. As an illustration, we cast our model in the context of Rift Valley fever in an East African livestock market. Copyright 2009, Oxford University Press.